the normative aspects of positive thinking

I love economics papers with “optimal” in the title. When I was first starting out in sociology, I planned to study immigration, remittances, and development. For a literature review I was working on, I spent some time reading about the economics of migration. I came across a gem titled Optimal Migration: A World Perspective. The first line of the abstract struck me as a brilliant example of “the normative aspects of positive thinking” – the way that economics sometimes emphasizes the normative conclusions of seemingly positive models. Here it is:

We ask what level of migration would maximize world welfare.

Who could oppose maximizing world welfare? The shear gutsiness of that kind of claim is part of what attracted me to studying economists and their influence. Can you imagine a sociologist asking what level of migration would maximize world welfare? Or even being so bold (or perhaps presumptuous) as to define a construct like ‘world welfare’ in the first place?

The newest issue of the American Economic Review reminded me of this paper when it announced another “optimal” paper, this time titled Optimal Life Cycle Unemployment Insurance (ungated pre-publication version here). The abstract tells the story nicely:

We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers.

I don’t have a strong opinion on the policy proposed, or at least the economics of it (the politics and history of welfare provision suggest strong reasons for universality and having as few criteria as possible), but again I love the straightforward way it is claimed to be ‘optimal.’

Author: Dan Hirschman

I am a sociologist interested in the use of numbers in organizations, markets, and policy. For more info, see here.

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